Petrobras (PBR) Stock Soaring on Brazil Domestic Bond Offering Speculation

NEW YORK (TheStreet) -- Shares of Petroleo Brasileiro Petrobras (PBR) are higher by 2.49% to $9.87 in late morning trading on Tuesday, following a Reuters report suggesting the Brazil-based oil and gas company is preparing to offer debt notes in Brazil's domestic markets, which could be sold as soon as next week.

State controlled Petrobras is looking for at least 3 billion reais ($983 million) with the transaction, a source told Reuters, adding that if additional and supplementary allotments were made the offer could bring in up to 4 billion reais.

The latest deal follows one from earlier in the month when Petrobras received a $3.5 billion loan from China Development Bank Corp., which highlighted Petrobras rising funding options in the aftermath of the corruption scandal.

Petrobras needs money to pay for already-contracted investment outlays this year and to refinance some of the $170 billion it owes banks, suppliers, and investors, Reuters said.

The deal would be in three segments, Reuters noted, the first would be a five-year portion and could pay almost 1.8% above the benchmark CDI interbank interest rate. The second would offer investors seven year debt and could pay close to 0.8% and the third portion would have maturity between nine and 10 years, paying 1.7% above comparable government inflation debt.

Separately, TheStreet Ratings team rates PETROLEO BRASILEIRO SA- PETR as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate PETROLEO BRASILEIRO SA- PETR (PBR) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 452.2% when compared to the same quarter one year ago, falling from $2,760.00 million to -$9,722.00 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PETROLEO BRASILEIRO SA- PETR's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio of 1.12 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, PBR's quick ratio is somewhat strong at 1.21, demonstrating the ability to handle short-term liquidity needs.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 38.32%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 457.14% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • PETROLEO BRASILEIRO SA- PETR has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PETROLEO BRASILEIRO SA- PETR swung to a loss, reporting -$1.12 versus $1.70 in the prior year. This year, the market expects an improvement in earnings ($1.53 versus -$1.12).
  • You can view the full analysis from the report here: PBR Ratings Report

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